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Is France Really Over This Time?

France in free fall…economic decline…on the brink of disaster. Those are some of the recent headlines about the French economy. It seems like we’ve heard it before (and I even blogged about it a few weeks ago), those rumors about the end of things as France has always known them, the aggrieved downfall of a once-great nation. But that was before the most intense and protracted economic crisis Europe has known since the 1930s. This time actually sounds different.

After decades of indulging in decline culture–that special brand of lyrical pessimism which the French could trademark–of foreign media scrutinizing the decline of this country perpetually preoccupied with the diminishment of its own greatness, the question that we’re hearing now is whether, economically, this is finally it for France. With its massive social spending, its enormous 90% ratio of public debt to GDP, its decades of investment in a government-subsidized quality of life that has made the “French way” famous, is France now on a Greece-like brink? At the end of a path of unsustainable spending that the government is simply failing or refusing to address?

Here is the alarmist interpretation of the current economic signals: “I’ve spent a good deal of time this past month reviewing the European situation, and I’m more convinced than ever that France is on its way to becoming the most significant economic train wreck in Europe within the next few years.” That’s John Mauldin, a (very conservative) financial writer in the Business Insider. If it’s extreme, it’s the extreme echo of a growing concern among Eurozone observers that France is ignoring some increasingly urgent warning signals.

The numbers, when you consider them all together and in the context of the broader economic context in Europe, are chastening. Most significant is France’s social spending which is among the highest in the world, at more than 30 percent of gross domestic product. Total public spending makes up about 56% of GDP, which makes sense when one fifth of all French people are employed in the public sector (that’s considerably more than Greece).

French unemployment is at a 15-year high of 11.2% and has risen for nearly 27 consecutive months (with a month of reprieve earlier this summer). Perhaps more significantly, economically and symbollically, French youth unemployment stands at 25.7%: that’s one quarter of the young people who can’t find work in a country which prides itself on the quality and prestige of its education.

The only real, significant and lasting solution is to cut public spending. That’s basic math. But that means making significant structural changes: rolling back France’s historic pension and unemployment systems (among the most generous in the world), cutting back on healthcare entitlements (among the most famous and high quality in the world), drastically reducing the number of the public sector employees, all those expenses that have forged the French identity, that are integral aspects of the French model, and French pride.

But the Hollande government, like nearly every government before it in the Fifth Republic (on the left or the right) has failed to make any significant spending reforms. The French have had it so good for so long (as I’ve mentioned in the past in this blog), no generation could possibly imagine that they would be the ones to do without, that something so harsh and inexorable would befall them. That’s not how things work in France. Or in French politics.

François Hollande knows time is running out.

Instread of cutting spending significantly, the goverment has raised taxes and continues to raise taxes, to the point that last week Hollande’s own finance minister, Pierre Moscovici–in a clearly off-message moment–even talked about a “ras le bol fiscal,” a fiscal fed-upedness, a public sentiment of total saturation with taxes. Then just a few days ago, Olli Rehn, the European Commissioner for Economic and Monetary Affairs and the Euro, declared that France has reached “the fateful limit of tax increases”. That’s the diplomatic equivalent in Europe of a very loudly whispered admonition: “Enough!” The IMF said the same thing in a report earlier this year, noting that tax pressures had reached “an excessive level” and recommending that the only lever France should be using to reduce its budget deficit is…spending cuts.

The Economist was headlining on French denial over ayear ago.

The irony (and tragedy, actually) is that everyone agrees. The EU, the IMF — and President Hollande all agree that France must make sending cuts, because in the face of all these indicators it seems delusional not to. But without the political will, without the public courage to both agree on the economics and make the extraordinarily unpopular structural changes that everyone agrees are, at this point, actually urgent, then all this consensus is no more effective than a long-term smoker promising to quit and then lighting up as he agrees that smoking kills. Just one last cigarette. Every subsequent cigarette becomes that one last drag. Usually that kind of behavior is called denial.

There is another consensus that seems to be growing among observers, and that’s that François Hollande does not, in fact, have the political will to quit. France sees itself as a natural leader among nations, and as a naturally enviable model democracy. France is proud and protectionist, and that now seems to have become a blinding pride, and a defensive protectionism. Part of the problem may in fact not be anything more complex than denial, denial that France–a country like France!–could be in these kinds of economic straits. Denial of the risk and the urgency.

Serge Gainsbourg never quit smoking.

Maybe things will work out. Maybe the economy in Europe will improve on its own, maybe the timid signs of the beginning of a recovery in the Eurozone will give way to a real recovery, resolving France’s unemployment and deficit issues on their own. Maybe France will be able to surf that wave, to pass under the radar, to get lucky. Lots of people never quit smoking, right?